The Case for Putin

Don't write off Russia's president.

Lewis E. Lehrman

December 22, 2003, Vol. 9, No. 15

AFTER THE LATE OCTOBER arrest of Mikhail Khodorkovsky, the Russian oil-industry billionaire indicted for fraud and tax evasion, a striking consensus emerged among American commentators: President Vladimir Putin was moving Russia toward dictatorship. U.S. intellectuals and pundits, liberal and conservative alike, responded with an apologia of Khodorkovsky and a parallel and pervasive assault on Putin.

But there is another possible interpretation of the controversial arrest: that Putin acted not against democracy but against corruption; that he played the part of a prudent constitutional chief executive in enforcing the laws of the Russian Federation; and that the Russian people sense this, which is one reason they gave Putin's party and its allied parties a landslide victory in the Duma elections held on December 7.

If this latter view is correct--if Khodorkovsky actually brought about his own downfall, through pride, ambition, and the criminal misdeeds recounted in the 40,000-page indictment--the eventual trial should vindicate Putin in the eyes of reasonable people. In a second term, Putin could emerge as a strong leader of a liberal democracy.

Whether such predictions are justified, only time will tell. Putin, to be sure, may be criticized on a number of important counts. But there are also positive trends in Russia that the new pessimistic consensus underrates. And there are good reasons for skepticism about some of the defenses that have been made of Khodorkovsky. Both aspects deserve more attention than the media have given them.

To dispose of the latter first, when the apologias for Khodorkovsky and his company, Yukos, are thoroughly examined, it is a safe bet that some will be found to have been unduly influenced, directly or indirectly, by the company and its chief. But more important than the motives of some of the apologists, many of their arguments hold up poorly on examination.

Remarkably, none of Putin's critics, as far as I know, has asserted Khodorkovsky's innocence (though his lawyers have). Instead, many claim that Putin's government is engaging in "selective justice." The implication is that no criminal law should be enforced against any lawbreaker unless it is enforced against every lawbreaker. But even in mature democracies, the scarcity of litigation resources and unevenness of evidence make justice necessarily selective. American prosecutors and the American public understand perfectly well that our own financial scandals lead to the indictment, much less conviction, of only a fraction of actual offenders. As for President Putin's terse remark that Russians should be equal under the law, from the biggest billionaire to the lowliest beggar, it expresses a kind of common sense about the law that Americans naturally apply in the Enron case.

The allegations of anti-Semitism directed at President Putin are similarly flimsy. With his sensible relationship with Israel and evenhanded statements about Russia's own minorities ("bandits" excepted), Putin has been generally sympathetic to the Jewish community. And the allegations that Putin's conduct in the Khodorkovsky case demonstrates a sustained campaign to shut down public debate is a canard, as even a casual reading of the vigorous press and web exchanges in Moscow will show. A New York Times editorial of December 8 remarked: "Today there are 23 parties and lots of furious campaigning. Despite the Kremlin's control over national television, newspapers and websites provide lively commentary and criticism."

The politics of the Khodorkovsky case are, of course, significant. It has been reported recently in Moscow that some oligarchs (including Khodorkovsky) made a transparent attempt to buy a minority of deputies in the Duma sufficient to block, among other things, a more equitable system of taxation, fairer to the Russian people and less favorable to the extractive industries (dominated by the oligarchs). Deputies from several parties (otherwise opposed to one another) were targeted. This particular maneuver will not likely be attempted again. Lobbying, of course, has its place in any democracy, but deputies for hire do not. It is now likely that Russia's tax system will become more equitable: The very rich will pay a fairer share, manufacturing will be encouraged, the average citizen will benefit, and the Promethean greed of the Yeltsin era will be channeled into the market, with benefits for all.

MEANWHILE, consider only a few of Putin's achievements since the total collapse of Russia's economy in 1998 and 1999. Today, Russia is in the early stages of building a civil society after 1,000 years of tyranny at the hands of Mongols, czars, boyars, and Communists. Perestroika, then Boris Yeltsin, in the late 1980s and early 1990s, opened the way for a decade of colossal corruption characterized by incompetence and official self-dealing. Putin has led a vital, four-year drive, first as prime minister, then as president, to contain these corrosive forces. As he said in September, "If by democracy one means the dissolution of the state, then we do not need such democracy."

A reading of Russia's financial performance will show that central bank reserves are over $70 billion, up from national bankruptcy in 1998--with an extraordinary rise in reserves of over 25 percent since January 2003. The flight of capital predicted at the time of Khodorkovsky's arrest has not materialized. The fiscal budget is in surplus. The current account surplus continues to add to these resources; some government debt has been repaid, some refunded. Russia's credit rating has risen from bankruptcy to Moody's investment grade. Reports on manufacturing growth are exceptional. President Putin's first term has been, in a word, a financial triumph.

The Yeltsin model of selling out the Russian people's assets, for almost nothing, to the "family" and the oligarchs will forever be deeply regretted in Russia. But privatization will persist, despite warnings to the contrary from Khodorkovsky's apologists. True, some Yukos shares will remain frozen until the criminal trial is over (a not uncommon practice under both U.S. and Russian law), but this period will be associated with continued growth and stability in the Russian economy, to the increasing benefit of middle-income and working people. Over the next five years, the European Union, China, and other countries will vigorously compete to invest in Russia.

The fact is, the positive economic trends set in motion during the presidency of Vladimir Putin are every bit as significant as those in China, India, and Brazil. Russia's private sector already accounts for almost 80 percent of national output, up from below 10 percent in 1990. Ordinary Russians own land and apartments and operate farms that 10 years ago they could only dream of, and that 20 years ago were possible only for members of the nomenklatura. Income tax rates have been reduced to 13 percent. Military spending has shrunk to a percentage of GDP comparable to that in the United States. Russia is now among the top eight recipients of foreign investment. Russians with good technical educations are being recruited and paid well, in Russia, by companies as diverse as Samsung, Intel, and Boeing. In a recent Financial Times piece, the Russian economy was projected to surpass that of the United Kingdom in just over two decades. The Russian economy should continue to grow at 6 percent to 7 percent for the rest of the decade. Wages, now rising as much as 20 percent a year, will grow further with improvements in productivity.

Then there are the foreign policy issues. Chechnya is, unfortunately, all too typical of history's bloody ethnic and civil wars. There is much to mourn in its excesses. Still, both recent wars in Chechnya began under Yeltsin, while President Putin is trying to end the conflict. And al Qaeda's collaborators in Chechnya are being confronted, just as the Chechen Islamist terrorists who seized a Moscow theater in October 2002 were destroyed, albeit at the tragic cost of 129 innocent lives.

Washington's request that Russian troops leave Georgia, as previously agreed, has been correctly reemphasized by Secretary of Defense Donald Rumsfeld. Still, one must be aware of Russia's historic interests in Georgia. But agreeing to disagree with President Putin on Georgia, and cautioning him about his intensifying diplomacy on behalf of Russia's commercial and security links to Eastern Europe, Moldova, the Caspian, and the Baltic states, need not ignite a new Cold War. Our country, after all, fairly disputes Russian foreign policy on matters of American national interest and principle--such as Iran, Iraq, and North Korea. President Bush sees this clearly, and his recent Camp David summit with Putin suggests that American-Russian entente will prevail. The consolidation of entente with Russia, if we can keep it, will be seen as a historic accomplishment by Bush and Putin, one for which our grandchildren will be grateful--not least because Russia and America must prepare to contain Chinese hegemony and expansionism in Asia.

The strong showing of President Putin's party in the Duma elections--United Russia and its potential allies could have a two-thirds majority--should accelerate the reform of civil society. To be sure, there is much to criticize about the recent elections, and the media have reported the criticism, often quoting Communist party accusations, among others, of unfair play by Putin's party. Nevertheless, the Duma elections and the presidential election due in March 2004 will gradually reduce the anarchy and corruption in the Duma (known by some in Russia as the Durdon, or the nuthouse). The Russian nationalist parties' calls in the campaign for a fairer distribution of wealth and more equitable tax system are faint echoes of the post-World War II Democratic party. But the rhetoric of progressive taxation will not lead to a rollback of privatization. The more malignant, xenophobic rhetoric of the nationalists is to be deplored, but it is safe to predict that it will go nowhere with President Putin.

Above all, future historians will appraise the immediate past and the developments of the next five years in light of the disorder of the decade 1989-99. An overwrought media, curiously infatuated with Khodorkovsky--and before him, with the oligarchs Boris Berezovsky and Vladimir Gusinsky--will gradually come round to acknowledging Putin's achievements.

A more seasoned Putin and a reformed administration and presidential staff, for their part, will prove to have learned much from the Khodorkovsky affair. More confident communication, more transparent legal processes, and better internal government coordination should enable Putin to handle major public debates with greater effectiveness. Khodorkovsky and the oligarchs, too, will have learned much about hubris--that there is no such lasting thing on earth as Prometheus unbound.

Finally, watch the losers in the recent elections. For unlike political losers in the Stalin era, they still have plenty of opportunity for success in Putin's Russia. As a victorious Putin himself remarked of the defeated candidates, "All their ideas, all their professional capabilities, if they decide to offer them to the government and society, will be put to good use."

Lewis E. Lehrman, co-chairman of the American Security Project, is a partner at L.E. Lehrman & Company, an investment firm that has investments in marketable Russian equities.